In our competitive business world, customer satisfaction is the heartbeat that sustains growth and success. One metric that has gained widespread recognition for measuring customer loyalty and satisfaction is the Net Promoter Score (NPS). However, key to success in using NPS as a tool is understanding its calculation methodology as well as the benchmarking process.
What is the Net Promoter Score (NPS)?
The Net Promoter Score is a widely adopted metric designed to measure customer loyalty and satisfaction. Introduced by Fred Reichheld in 2003, NPS revolves around one single question: “How likely is it that you would recommend our company/product/service to a friend or colleague?” Respondents provide a score on a scale from 0 to 10, with 0 being the least likely and 10 being the most likely. Based on their response, customers are then categorized into three categories: Promoters, Passives and Detractors.
Promoters (9-10): Devoted enthusiasts likely to recommend your business, contributing to attracting new customers.
Passives (7-8): Content but less committed customer, susceptible to switching to a competitor if a superior offer arises.
Detractors (0-6): Dissatisfied customers capable of negatively impacting your business’s reputation and growth through adverse word-of-mouth.
So, how do you calculate NPS? It’s simple, just subtract the percentage of Detractors from the percentages of Promoters.
Net Promoter Score = % Promoters - % Detractors
For example, in a scenario where 10% of the respondents are Detractors, 20% are Passives and 70% are Promoters, your NPS would be calculated as: 70% (Promoters) – 10% (Detractors) = 60% (NPS)
What is a good NPS?
NPS scores can fall anywhere from -100 to +100. Based on an article from Retently, if your NPS falls below 0, it suggests that your business has significant issues to address. Here is a quick overview:
A score within the range of 0 to 30 is considered favorable, indicating positive customer interactions. Strive to maintain a score above 0; falling below zero should be a cause for concern, prompting a closer examination of the overall customer experience provided.
An NPS above 30 shows that your company is performing well and has a higher number of satisfied customers compared to dissatisfied ones.
NPS surpassing 70 signifies strong customer affection, translating into positive word-of-mouth through referrals. A higher NPS enhances the likelihood of customer referrals converting into new leads, leading to increased revenue for your company.
It should be noted, however, that NPS goes beyond a numerical metric, rather, it serves as a guiding compass steering businesses toward excellence centered around the customer.
Benchmarking Your NPS
Now that you have obtained your NPS, what do you do with the information? Understanding and benchmarking your NPS is a crucial step in assessing your company’s customers satisfaction and loyalty. It is essential to follow specific steps to assess your NPS score:
Compare it with your industry average Begin by comparing your NPS with the average scores within your industry and against your competitors. Recognize the relative nature of NPS and how it varies across different markets.
Compare the score within a region NPS not only varies by industry but also by geographical area. Cultural differences can significantly influence NPS scores.
Consider the survey channel Take into consideration the survey channel used and the methodology employed as it can significantly impact the NPS score. Whether it’s a phone call or a web survey, ensure consistency in your chosen method to accurately compare NPS score with competitors.
Use your baseline NPS as your own benchmark Recognize that the NPS score alone is not sufficient; the key is improving over time. Use your baseline NPS as your benchmark and focus on comparing against your own scores from the past three to six months.
How to improve your NPS Score
To enhance your NPS, according to Qualtrics, you must first uncover any underlying issues. Identifying and addressing the given scores can often unveil specific pain points. For example, slow response time or high prices. Once these “pain points” are identified, gain feedback from your customers to identify the root cause and take action! Regardless of whether the feedback is positive or negative, understanding the factors behind the customer score is crucial for improvement.
It is also key to engage with the detractors. Elevating your relationship with detractors extends beyond just addressing their negative experience. Presenting the customer with practical solutions demonstrates support and can potentially change the customers’ perceptions of your service.
Similarly, it is key to leverage promoters. Even though promoters already recognize your strengths, seek specific feedback to understand how your business stands out and how you can continue to meet their expectations. The Pareto Principle, which states that 80 percent of revenue comes from 20 percent of business, highlights the cost-effectiveness of retaining existing promoters compared to solely trying to win over the detractors.
While many businesses are fixated on increasing their NPS, its important to recognize that NPS is not simply a quantifiable metric for perpetual growth, rather, it primarily serves as qualitative measure for reflection, analysis and response. The purpose of the NPS is to assist in tracking and nurturing the relationship established with your audience. The ultimate goal should always be to heed the voice of your customers and implement changes accordingly.
AOE has expertise in helping not only generate your NPS but also providing tailored solutions to elevate customer satisfaction and loyalty. Contact the AOE team to not only meet but exceed your customer satisfaction goals.